Medicare v. Big Pharma: The Push for Cheap Drugs

Big Pharma and Medicare are embroiled in a price fight on high-demand prescription medications mainly used by citizens 65 and older.

In a statement released by the White House, Medicare is now able to directly negotiate with Big Pharma on the prices of certain medications and drugs that senior citizens of the United States tend to spend billions of dollars on, mostly out of their own pockets. This is due to a provision in the Inflation Reduction Act, part of the Biden-Harris Administration’s push to lower health care and prescription drug costs. 

Such drugs like Jardiance and Elaquis are aimed at caring for chronic heart disease, diabetes, heart failure, Crohn’s disease and more.

Under the Act, Medicare would essentially be able to “...expand benefits, lower drug costs, keep prescription drug premiums stable, and improve the strength of the Medicare program,” as stated by the Centers for Medicare and Medicaid Services (CMS).

The Pharmaceutical Research and Manufacturers of America (PhRMA) association has since released a statement from its President and CEO Stephen J. Ubl regarding the list of medications that the U.S. Department of Health and Human Services (HHS) and the CMS released. 

“Today’s announcement is the result of a rushed process focused on short-term political gain rather than what is best for patients,” Ubl stated. “Giving a single government agency the power to arbitrarily set the price of medicines with little accountability, oversight or input from patients and their doctors will have significant negative consequences long after this administration is gone.”

But, as stated by the CMS,  Medicare Part D is meant to do exactly that: make the costliest drugs from “single-source brands” under Part D more accessible to the public which needs them.

In the case of price negotiation, this would entail lowering the prices of insulin to 35 dollars a month with a prescription — a price significantly cheaper than the average cost of a single vial or fill.

In addition to lowering prices on Big Pharma medications and drugs, the Inflation Reduction Act would also see the implementation of inflation rebates in Medicare.

According to the CMS, such inflation rebates would mean that Big Pharma companies would be required to pay a rebate to Medicare if the rate at which they raise their drug prices is faster than the rate at which inflation rises.

But what incentives would there be for Big Pharma to comply with rebates and lower prices on drugs and medications that make them millions in profit? 

 “Unfortunately, there’s no incentive for pharmaceutical companies to lower their prices because they want to make as much money as they can,” as stated by Luke Fesko, Ph.D., assistant professor in economics at Marist College.

As negotiations between Medicare and Big Pharma continue, the nation could see potential shifts in the economy if Medicare manages to sway things their way, as the pharmaceutical companies could stand to lose thousands, if not millions, in profit. 

“When you hit 65 you’re eligible for Medicare and most people end up using it at some point in their life…using this in this case, it’s going to allow that huge group of people to argue for lower prices, which are going to make prices lower in the entirety of the economy,” said Fesko. “...because of the scale we’re dealing with when we’re dealing with a good 20% of the country over 65, it’s going to have a giant ripple effect in terms of lowering costs all around.”